Funnel Optimization And User Analytics In A Product-Led Strategy
Turning free users into premium subscribers is a common challenge for many SaaS businesses. I applied a product-led growth approach with a B2C SaaS client to increase their premium subscribers. My research and experiments estimate up to a 60% increase in incremental monthly recurring revenue (MRR). Here are the details.
If you have any questions or want help to grow your user upgrades, get in touch.
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Project Background And Challenges
My client is a SaaS provider that has been in operation for over ten years. Headquartered in Portland, Oregon, the company has 10 to 20 employees and makes $X millions in annual recurring revenue (ARR). Consumers and businesses use the SaaS product to track website changes.
The company serves a global user base and offers free and premium features. Most users use it for free, and only a small fraction upgrade to premium.
I explored a targeted email marketing strategy to increase the conversion of free users to premium subscribers.
I have permission from the client to share their logo and project details. But, I’ll hide the numbers.
Developing The Freemium Funnel Structure
I created a freemium funnel for the client.
Optimizing Mid-Funnel Conversion Using 3 Questions
I looked at 3 questions for conversion rate optimization (CRO) at the middle-of-the-funnel stage:
Who should we contact?
When should we reach out during their user journey?
What messaging is most effective?
Applying AARM And AARRR Metrics
I used the AARM method and AARRR pirate metrics framework to track and optimize the conversion of a prospect to a free or a paid user:
Signup: The user registers and creates an account, initiating their use of the service.
Activation: The user completes their first task by setting up their first website monitor with our product.
Engagement: The user creates new monitors, indicating habitual use of product features.
(In)Activity: The user uses the app, as evidenced by their status as a Monthly Active User (MAU).
Retention (Churn): The user continues using the product beyond the initial months. They are getting long-term value.
Applying Triage Principles For Targeting Customers
I grouped users to maximize the conversion potential using military triage principles:
Group 1: Users likely to upgrade without intervention.
Group 2: Users who won't upgrade regardless of intervention.
Group 3: Users who might upgrade due to a persuasive intervention.
I walk through my data analysis to identify Group 3 users.
Researching To Target Relevant Customer Segments
I used these tools for data-driven research:
I identified correlations between users' behavior and the transition to premium pricing.
I noticed that users with free emails converted x%, whereas users with corporate emails were 60% more likely to convert to paid users.
I compared the usage patterns of premium users and free users. I saw that some use cases were more prevalent in paid users than free users.
Identifying The Best Time To Encourage Upgrades
I analyzed the right time to encourage users to upgrade from free to premium pricing. My goal was to maximize revenue by targeting “Group 3” users who are more likely to accept promotional discounts. But, I wanted to do this without impacting revenue from our “Group 1” users, who will upgrade even without a discount.
Next, I wanted to estimate the number of users in our target segment. I looked at the average daily number of users attempting premium-tier tasks while on the free tier.
Building An MVP Process For User Notifications
I built an MVP process with Mautic, lead gen form, spreadsheets, and manual database edits.
Building the MVP process included:
Personalized email templates in Mautic; highlight the premium benefits.
A/B testing of the content and process, as seen in the process flowchart.
Using Metabase for SQL queries to identify the target list.
A lead generation form to collect customer information to apply a promotional discount.
Manual database edits to extend the expiry dates for customers’ premium pricing.
Results: Learnings From MVP
In the initial phase, we encountered issues with spam filters. Our learnings included:
Spam filters blocked our initial batch of emails. Our email vendor, Sendgrid, suggested we cool down our email activities and move to a new dedicated IP address.
Instead of creating a new email alias, we need to warm up an email ID for this by emailing known contacts.
We should use an email ID for multiple marketing purposes so that customers recognize it.
We emailed users many months after their sign-ups. Instead, we should start an email drip campaign with new customers with less time between their opt-in and our first email.
Projected Impact: Targeting A Boost In Upgrades
This email campaign will likely boost the conversion of users in the triaged group 3. The number of users in Group 3 was 60% of those in Group 1. This targeted email campaign can increase the total number of upgrades and incremental MRR by up to 60%.
This project also showed the client the importance of an email drip campaign and sending marketing emails to their free users.
Recommendations
If you want to encourage your free users to upgrade to paid users, think of these questions:
What differentiates the usage of free and paid users?
What differentiates the characteristics of free and paid users?
In their lifecycle, when do users upgrade?
Why do users upgrade from free to paid?
Once you have answers to these questions, create a marketing campaign to promote upgrades (or upsell).
If you have any questions or want help to grow your user upgrades, get in touch.
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